October 26, 2012

We
will be traveling next week and so the next Friday post will be on November 9.
An updated Model Portfolio will be posted.

GDP
grew 2% in the third quarter. The economy is slowly recovering. It is good to
remember that 92% are employed. And that the difference from relatively
satisfactory employment numbers is only 2%.

With
the GDP news we decide to raise equity exposure by buying
a few more quality stocks. We repurchased Walgreen, GM warrants, and Cisco, all
slightly below our sale price last month. We also added DuPont which dropped
15% in price this week on a disappointing earnings forecast.

October 19, 2012

We
continue to expect no significant movement in the markets until the election.

This
week we decided to repurchase Abercrombie, Juniper, and Intel 20%, 10% and 5%
lower respectively from where we sold last month. We also bought Aéropostale
(off 5% from when we sold and 40 % from its yearly high in August) and Nvdia
down 15% from our September sale price.

All
the stocks we bought are keepers as well as good trading situations.

Abercrombie
ran up to $38 from this $32 level last month (and has since returned) when they
announced that they had hired Goldman Sachs to consider strategic alternatives.
ANF is the perfect stock for a leveraged buyout and even if that doesn’t occur;
it is cheap in relation to all the other teen retailers. We have room to add more
at lower prices.

Juniper
is also the subject of buyout rumors. It is cheap on its merits and we want to
own it anyway. Interestingly Sprint which is going to be partially acquired by
Softbank, a Japanese company, doubled in value in the last month before the
announcement. Insider trading of takeovers by foreign companies remains
unchallenged by authorities.

We
also repurchased Intel lower than our last sale. It yields 4% and remains the
major player in the chips market.

Standpoint Research suggests
you look no further than retail, and clothier Aéropostale
in particular. "Aéropostale shares have been washed out," says the
analyst, "now down by more than 3,000 bps versus the S&P since
our February downgrade." As a result, "bad news is already more than
priced in [and] we are betting on a reversion to the mean and that this
represents a bottom."

Could Standpoint be right?
Like Qualcomm, Aéropostale sells for a premium P/E ratio north of 17, but Aero's
growth rate isn't even as robust as what Wall Street expects Qualcomm to
produce. On average, analysts think the best Aéropostale can manage is about
12% long-term earnings growth over the next five years.

The good news here is that
unlike Qualcomm, Aéropostale is generating a whole lot more free cash flow than
its GAAP numbers suggest. Over the past year, free cash flow at the firm
amounted to $95 million, or half-again what Aéropostale claimed as "net
income." At an enterprise value of less than 10, and with 12% growth in
the offing, Standpoint does indeed appear to have spotted a bargain.

Nvdia has negative analyst news
this week and that is the reason we bought after it dropped 10% in two days.
The news was:

One week from the
introduction of the “RT” version of Microsoft‘s (MSFT) “Surface” tabletcomputer,
which runs on an Nvidia (NVDA) “Tegra”
microprocessor, FBR Capital’s Craig Berger cut his rating to Market
Perform from Outperform on Nvidia stock and cut his price target to $14 from
$17.50, “given ongoing demand weakness in PCs, smartphone/tablet
cannibalization impacts, and a lack of meaningful catalysts until next year.”

Although Nvidia is “the most
attractive PC chip stock” given design wins in the Surface, not to mention Google‘s (GOOG) “Nexus 7” tablet,
and a myriad of other devices, nevertheless there is still the risk that its
sales of discrete “graphics processing unit,” or GPU, sales could be hit by
protracted slowdown in PC sales ahead of actual uptake of Windows 8:

For 3Q12 or 4Q12, NVIDIA’s revenues could see a meaningful decline in
at least one quarter with macro demand weakness, a Win8 production/consumption
air pocket, and ongoing mobile cannibalization impacts.

Among relevant PC stats, he
cites:

Checks with the top six notebook ODMs show 3Q12
notebook builds grew only 1% sequentially, consistent with our prior check,
which at that point was the fourth negative revision since the quarter began,
and worse than our initial build estimate of +8% sequential unit growth.

October 12, 2012

We took no action this week. Our guess is that the markets meander until Election Day unless polls
move more strongly in Romney’s direction. If Obama wins the S&P 500 will move
lower to 1300 (now at 1430). If Romney wins S&P 500 moves up to 1550. Given our
usual buying of out of favor issues we probably will be mostly on the sidelines till mid-December.

October 5, 2012

There
was no activity. Unemployment rate reported at 7.8%, the lowest since early
2009. Romney wins debate.

Our
thought process on the market action goes something like this. With the
favorable employment report this morning- even though Jack Welch, former GE CEO
and his Neanderthal friends are suggesting collusion- the Pooh-Bahs on Wall
street who want a Romney victory have to be a bit conflicted. They don’t want
the markets to be making new highs in the weeks before the election and we do
think they have the power to prevent that. Call us conspiracy theorists but …………..*****

This site contains copyrighted material the use of which has not always been specifically
authorized by the copyright owner. We are making such material available in our efforts to advance understanding of environmental,
political, human rights, economic, democracy, scientific, and social justice issues, etc. We believe this constitutes a 'fair use' of any
such copyrighted material as provided for in section 107 of the US Copyright Law. In accordance with Title 17 U.S.C. Section 107,
the material on this site is distributed without profit to those who have expressed a prior interest in receiving the included information for
research and educational purposes. For more information go to:
http://www.law.cornell.edu/uscode/17/107.shtml. If you wish to use
copyrighted material from this site for purposes of your own that go beyond 'fair use', you must obtain permission from the copyright owner.

Annual offer to present clients of Lemley Yarling Management Co. Under Rule 204-3 of the SEC Advisors Act, we are pleased to offer to send to you
our updated Form ADV, Part II for your perusal. If any present client would like a copy, please don't hesitate to write, e-mail, or call us.

A list of all recommendations made by Lemley Yarling Management Co. for the preceding one-year period is available upon request.

The factual statements herein have been taken from sources we believe to be reliable but such statements
are made without any representation as to accuracy or completeness or otherwise. From time to time the Lemley Letter, or one
or more of its officers or employees, may buy and sell as agent the securities referred to herein or options relating thereto, and may
have a long or short position in such securities or options. This report should not be construed as a solicitation or offer of the purchase
or sale of securities. Prices shown are approximate. Past performance is no indication of future performance.